Arab Open University
Faculty of Business Studies
Business Functions in Context I
B203A -- Second Semester 2015-2016
Tutor Marked Assessment
Managing Marketing Channels: Zara |
One global retailer is expanding at a dizzying pace. It's on track for what appears to be world domination of its industry. Having built its own state-of-the art distribution network, the company is leaving the competition in the dust in terms of sales and profits, not to mention speed of inventory management and turnover. Wal-Mart you might think? Dell possibly? Although these two retail giants definitely fit the description, we're talking here about Zara, the flagship specialty chain of Spain-based ...view middle of the document...
For more mainstream clothing chains, the process takes months.
This gives Zara the advantage of virtually copying fashions from the pages of Vogue and having them on the streets in dozens of countries before the next issue of the magazine even hits the newsstands! When Spain's Crown Prince Felipe and Letizia Ortiz Rocasolano announced their engagement, the bride-to-be wore a stylish white trouser suit. This raised some eyebrows, given that it violated royal protocol. But European women loved it and within a few weeks, hundreds of them were wearing a nearly identical outfit they had purchased from Zara.
But Zara is more than just fast. It's also prolific. In a typical year, Zara launches about 11,000 new items. Compare that to the 2,000 to 4,000 items introduced by both H&M and Gap. In the fashion world, this difference is huge. Zara stores receive new merchandise two to three times each week, whereas most clothing retailers get large shipments on a seasonal basis, four to six times per year.
As part of its strategy to introduce more new items with greater frequency, Zara also produces items in smaller batches. Thus, it assumes less risk if an item doesn't sell well. But smaller batches also means exclusivity, a unique benefit from a massmarket retailer that draws young fashionistas through Zara's doors like a magnet. When items sell out, they are not restocked with another shipment. Instead, the next Zara shipment contains something new, something different. Popular items can appear and disappear within a week. Consumers know that if they like something, they have to buy it or miss out. Customers are enticed to check out store stock more often, leading to very high levels of repeat patronage. But it also means that Zara doesn't have to follow the industry pattern of marking products down as the season progresses. Thus, Zara reaps the benefit of prices that average much closer to the list price.
THE VERTICAL SECRET TO ZARA'S SUCCESS
Just how does Zara achieve such mind-blowing responsiveness? The answer lies in. its distribution system. In 1975, Amancio Ortega opened the first Zara store in Spain's remote northwest town of La Coruna, home to Zara's headquarters. Having already worked in the textile industry for two decades, his experience led him to design a system in which he could control every aspect of the supply chain, from design and production to distribution and retailing. He knew, for example, that in the textile business, the biggest mark-ups were made by wholesalers and retailers. He was determined to maintain control over these activities.
Ortega's original philosophy forms the heart of Zara's unique, rapid-fire supply chain today. But it's Zara's high-tech information system that has taken vertical integration in the company to an unprecedented level. According to CEO Pablo Isla, "Our information system is absolutely avant-guard. It's what links the shop to our designers and our distribution system."